Commodities Analysis & Opinion

Is the Fate of Gold Miners Already Sealed?

 

Gold
+0.66%

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Silver
+0.93%

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GDXJ
+1.94%

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The star pattern turned out to be an accurate prediction of gold‘s decline. If the dramatic downturn stage begun, what will happen to the GDXJ?

In yesterday’s analysis, I emphasized that gold’s shooting star reversal was a very bearish indication for gold. Indeed, gold declined. What’s next?

Quoting my yesterday’s analysis:

Gold declined by almost $15 yesterday, so it seems that the above-mentioned decline is already underway.

GDXJ Daily ChartGDXJ Daily Chart

Mining stocks haven’t declined profoundly yet, but that’s probably due to the fact that stock market prices haven’t declined so far either.

As gold declines more, miners are likely to follow it lower pretty much regardless of what the stock market does, but still, it seems very likely to me that the latter will slide anyway. And yes, stock prices’ decline would be likely to result in much lower mining stock values.

In other words:

  • If gold declines significantly but stocks don’t, miners are likely to decline significantly anyway.
  • If gold and stocks decline significantly, miners are likely to decline in an extreme manner.

In my view, the latter is the most likely outcome for the following weeks/months.

SPX Daily Chart

I previously wrote that the S&P 500 Index failed to break above the 4,000 level and its 38.2% Fibonacci retracement level. At the moment of writing these words, the S&P 500 futures are trading at about 3,950. This resistance remains intact. Stocks have been unable to move above those levels, which means that the bearish implications of their failed attempt remain in place.

The current medium-term trend remains down, and the above paragraph indicates that it’s about to resume.

As I wrote earlier, this is likely to have profoundly bearish implications for mining stocks. It’s also the case with regard to silver prices, but let’s keep in mind that silver tends to catch up with gold and mining stocks in the final part of a given move. Consequently, miners could decline profoundly first, and silver could decline profoundly a bit later.

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